Why McDonald's Will Never Be Great Again
The world's largest restaurant operator offered up uninspiring financial news on Tuesday, reporting that same-store sales at its domestic locations rose a mere 0.2 percent during the month of August.
That's pretty bad. It's not just a matter of not beating inflation. McDonald's rolled out its Monopoly promotion earlier this year, and the popular giveaway typically provides a boost to store traffic as guests collect game pieces in the pursuit of food and larger prizes.
McDonald's has also been beefing up its menu with new items including a premium chicken wrap this summer. More recent additions include chicken wings and a new steak breakfast sandwich.
And the result of all that effort to move the needle? Essentially, nothing. Ronald's painted-on smile must be getting strained.
A Delicious Decade
Fast food has been a winning industry over the years, and McDonald's posted consistently positive monthly comps for nearly a decade before slipping in October of last year. The results have been largely unimpressive for most of the months since then.
Consumers are choosing the higher quality food at fast casual chains, even if it means that they have to pay a little more. It also doesn't help that smaller burger chains with cult followings such as In-N-Out and Five Guys are starting to broaden their reach.
McDonald's survived "Super Size Me," a documentary that bashed the chain's unhealthy and gargantuan portions in 2004. Comps remained positive a few years later as the global economy went into a tailspin. So it's a surprise to see the operator seem so mortal now that the economy's back on track.
Big Trouble for Big Mac
McDonald's isn't going away anytime soon. It serves 69 million customers through its 34,500 restaurants worldwide on any given day. And globally, sales growth was better. However, its very size could be a problem as it tries to grow. After all, these days the chain's a popular target for health advocates blaming it for escalating rates of childhood obesity and labor activists trying to get it to pay its employees more.
It's probably telling that McDonald's became the central target in strikes this summer to get the fast food industry to roughly double its starting wage to $15 an hour. Strikes hit other large chains too, but it was McDonald's making most of the headlines.
In theory, McDonald's is one of the few fast food chains that could survive paying that much. The $8 billion hit across its franchisees and company-owned stores would be steep, but it could pass that along to consumers in the form of modestly higher prices.
One can even argue that McDonald's is bracing itself to pay more. It recently began adding higher tiers to its Dollar Menu. The introduction of Mighty Wings and steak biscuits this summer points to a chain that's trying to drive average receipts higher.
However, that may not work for a company that has established its brand on cheap eats. A popular reason given for the slide in store traffic late last year was that the chain had tried to aim too high with premium chicken sandwiches, fancy coffee drinks, and fruit smoothies. Customers wanted more value, it was theorized, which led to a renewed emphasis on promoting its iconic Dollar Menu.
However, now that that isn't working -- and McDonald's has exhausted its efforts to aim higher with chicken salads, premium McCafe beverages, and artisan bread sandwiches -- where does the chain go from here?
You know the answer. McDonald's will never be great again.
Motley Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends Chipotle Mexican Grill, McDonald's, and Panera Bread. The Motley Fool owns shares of Chipotle Mexican Grill, McDonald's, and Panera Bread. Try any of our newsletter services free for 30 days.